Performance of Vat System in Tanzania Since Enactment of The Vat Act in 2014: Value Added Tax System, Value Added Tax Performance, Value Added Tax Act of 2014

Value Added Tax System, Value Added Tax Performance, Value Added Tax Act of 2014

Abstract

The 2014 Value Added Tax (VAT) reforms focused on reduction of the base
alterations and broadening the tax base and also dealt with several legal drafting
issues to enhance the effectiveness of the new VAT law with hopes of enhancing
revenue collection. The objective of this article is to assess the performance of VAT
system in Tanzania in terms of tax payer’s registration and collection efficiencies.
This study adopted a quantitative paradigm whereby data were analysed
quantitatively through descriptive statistics and ratio analysis for efficiency
measurement. Only secondary data were used in this study. The sources of data
were reports from the Tanzania Revenue Authority (TRA), the National Bureau of
Statistics (NBS), the World Bank (WB), IMF and peer-reviewed journal articles on
relevant subject matters. The study revealed a total of 4,575 taxpayers who were
eligible to be registered for VAT but who were not captured by the VAT tax system
by January 2022. As a result, the government is estimated to have lost about TZS
23,350.09 billion during that period. Furthermore, it was found that the
contribution of VAT to GDP is 3.6 per cent which is below the country’s expectation
threshold of 6 per cent annually and is below the East African Community member
states’ average of 4.4 per cent. Both the VAT Efficiency and C-efficiency ratios
were not performing well; their averages were 21.9 and 20.7 per cent respectively,
below the EAC regional average of 25 per cent. It is recommended to the
government to increase VAT registration threshold and reduce the VAT rate. TRA
is urged to decentralize the registration of VAT taxpayers to regions so as to
improve compliance and administrative efficiency. The study further recommends
to TRA to audit the 4,575 taxpayers whose turnovers are above TZS 100 million but
are not yet registered and captured within the VAT tax net.